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The Federal Reserve and European Central Bank have for a long time now been wrestling with a problem that is truly novel. They find themselves in an interest rate trap, which means they need to restore borrowing rates to something close to the historic norm, but doing so puts the global banking system at risk. The political class is just as hooked on cheap money as the bankers, so their is no appetite for a Paul Volker like approach to solving the money problem in the West.
For a long time, the problems were abstract. Everyone knew that near zero interest rates would one day create big problems, but in the here and now they made all of the important people happy. The reckless and insane response to Covid by Western ruling classes moved the problem into the domain of reality. Massive spending by government put enormous amounts of cash into the hands of regular people, not just the bankers, and those regular people started spending it.
Compounding this was the decline in global demand for dollars. Since the 1990’s, the Chinese economy was able to soak up extra dollars and euros. Other parts of Asia could also be counted on to take dollars in the form of investment. The massive liquidity in the banking system was, in effect, sequestered from the retail economy of Western countries, so the impact was low. That and the rest of the world was happy to hold euros, dollars and bonds in those currencies.
Covid was an accelerant in many ways, but one very important way was in regards to the Chinese economy. Central to the long term plans of China is to boost domestic demand and reduce her dependence on exports to the West. Lock downs and the subsequent decline in global commerce accelerated the process. China came out of Covid with far less demand for Western investment. Those extra dollars and euros are retuning to their makers.
It is looking like the insane response by the collective West to the war in the Ukraine is another accelerant to a process that was slowly building steam. Cutting Russia off from the “rules based international order” was a wake up call for the large, non-Western economies of the world. China understood right away that the dollar was Washington’s primary weapon in international affairs. The Saudis also came to see the problem with depending upon Washington to abide by the rules.
More important, the Russian economy survived the assault by Washington and she successfully defended the ruble. When Russia demanded payment in rubles from Western nations and they went along with it, the world changed. All of a sudden, the multipolar world with multiple competing currencies came into focus. China, Russia, India and the OPEC countries have now set off on a path where the dollar and euro no longer have a special place in global trade.
The enormity of this politically and economically cannot be overstated. This week the ruler of China is making a visit to Moscow. Generations of American policy makers have worked to avoid this meeting, but the current crop in charge of American foreign policy wrecked all of that and now we have an alliance between Russia and China. The world’s largest economy is now a strategic partner with the world’s biggest nuclear power, in opposition to the Global American Empire.
The global realignment does not stop there. The Russians have been brokering a peace between the Turks and the Syrians. The goal is to squeeze out the Americans, who are in Syria stealing Syrian oil and gas. China has brokered a deal between Saudi Arabia and Iran, which promises to reorder the region. The oil producing hub of the world is suddenly in the orbit of China and Russia. Economics follows politics, so it is not hard to see what this does to the dollar and euro.
For the last year, the Fed and ECB have been facing a problem. There is far too much money in the system and the demand for their money is in decline globally, which means they have to remove money from the system. They tried to ignore the problem by spinning yarns about inflation being transitory, but rocket high food bills made that story impossible to maintain. The politicians demanded the Fed “fix” the economy for them, so the Fed started to raise rates.
That is what brings us back to the interest rate trap. The entire Western banking system depends on exclusive access to cheap money. This is their margin. They no longer provide much in the way of essential services. Much of what the banking system does could be automated at this point. The profits come from operating a casino in which the house arbitrages the difference between what it pays for money and what the suckers on the other side pay for money.
If all of a sudden the price the house pays for money closes with that which the suckers are paying, then the casino goes bust. That is what we are see now. Silicon Valley Bank and Signature Bank were just money laundering schemes for plutocrats. Once interest rates went up just a little, they were no longer viable. Credit Suisse was just bailed out by the Swiss National Bank for the same reason. These banks could only exist in the world of free money to the banks and their clients.
Over the weekend, the Fed with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank announced a global bailout of the Western banking system. They are offering unlimited cash in exchange for the illiquid assets on the bank’s books. The reason they did this is they know that every bank in the West has the same problem as Credit Suisse. That is their liabilities outweigh their assets so they are effectively broke.
Of course, you cannot fight inflation while showering the system with cash, which means the effort to rein in inflation has come to an end. The Fed will try to limit the swapping of bad assets for cash by substituting treasuries, but this sort of legerdemain is just so they can continue the game of make believe. High inflation is now the new normal in the West because it is impossible to raise rates. The West has turned itself into Argentina through bad policy and worse politics.
For generations now people have warned about the long term cost of living on borrowed money, but they were mostly wrong. Living on borrowed money is self-correcting in that the lender eventually stops lending. What the West faces is a problem where the lender cannot not stop lending. The only way to sustain this now is for the people to be impoverished through systemic inflation. Inflation is now the banker’s friend, because it promises to keep the cheap money flowing.
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And we can’t forget, the interest rates were low for so long for two reasons:
1. To encourage recovery from 2008 stock crash, caused by an attempt to help minorities via lowering mortgage qualifications.
2. To make Obama look good during economic recovery.
So we ruined the whole world to help minorities, twice.
It’s morally the right thing to do.
We have to give taxpayer money to the banks so they can lend that money to the taxpayer.
Who can disagree with that?
It wasn’t solely to help minorities own homes. It created an artificial boom and Wall St. made massive amounts in fees and leveraged derivatives arbitrage. Then the stimulus was done, to prevent the bankers from taking losses and to turn the private sector into a jobs program.
The justification is always to help the “disadvantaged; underserved; historically-marginalized.” They are just excuses and pets who get paid and made to feel like they are important. The real minority that these schemes benefit in a highly concentrated manner is the one running Wall St. and the City of London.
A good essay. I’m surprised that Z overlooked one of the most important purposes of inflation: It makes dollars worth less, thus easier for debtors to repay their debts. And government, especially the Federal, is the biggest debtor by far. And they own the printing press. I’m not saying go deep into debt, but perhaps don’t be too quick to repay yours (possible exception: usurious debt like credit card.) Keep minimal amount in cash, the rest in real goods or real-wealth-adjacent.
Absolutely…don’t give up that fixed rate mortgage under any circumstances….
Cue the new Evita–“don’t cry for Americanos, the truth is we did it ourselves…”
Gibs me Dat, the pittance we got was one tiny drop in the flood of monopoly money real players are swimming in.
We never voted for Gibbs, we had to pay for everybody’ else’s
I was hoping for nuclear Armageddon.
Turns out we just all freeze & starve. The only thing to look forward to now will be. the day that EBT quits.
Enjoying an 18% raise due to a (non public sector) union negotiated contract.
Looking forward to paying off a 3% 30 year mortgage with the funny money.
There’s a silver lining to everything.
Problem is, the value of the real estate, linked to that mortgage, is about to plummet by 25-40% over the next few years, at which point it looks far less enticing, I’m afraid.
In Germany 1922 – 1923 they indexed everone’s mortgage payment for inflation, you know to protect the banks. How would you like to get a post card telling you your payment just doubled, and then another one doubled again.
For the average Joe, that only works if your nominal income keeps up or close to inflation. If the raises and COLAs stop, you get it in the cola, good and hard.
Richard Russel: Inflate or die
The cosmopolitan globalists who currently run the USA/West truly only know hatred, theft, lies, and violence – they do not know how to build things of value, only how to siphon value off of what other more constructive people have built.
Evil can’t create, it can only corrupt and destroy.
I wonder if Tolkien weaving Christian themes into Lord of the Rings actually makes it an better moral paradigm, removing it one more layer from Judaism.
There is one silver lining: after a foreign power brings the Global American Woke Empire to her knees, a lot of whining lefties will get a gun butt in the teeth.
Pretty sure they are going to get the business end actually, and in a way that will be so shocking to so many people. Years of silent simmering rage and overt oppression tend to have that effect. ¯\_(ツ)_/¯
Well we can hope. The smarter rats appear to be jumping ship. Max Boot has announced he’s leaving neoconservatism. Must say I’ve always admired that large perfectly shaped domed head of his.
No problemo. The polish foreign minister seems eager to fight Russia, cuz Ukraine. Putin will hit him. Our morons will launch WW3, cuz Art 5. No one will care about a banking crisis. All under control.
I read the blatherings of the Polish FM, all the Polish jokes are real. If Poland starts the war, Article 5 isn’t a thing and Poland is on their own. Russia won’t be as kind to them as they’ve been to the Ukes. Poland can’t seem to help themselves, their country will be leveled and anything they do to Kaliningrad will be paid back a hundred times over.
Kaliningrad has had at least several nukes stationed there for a while.
They’ll be just fine.
In 1938 the Polish government sounded as belligerent as the Biden admin. Thought they could whip Germany.
Even Poles probably aren’t that dumb…are they?
they had british guarantees of security. the brits goaded them on saying “don’t worry , we got your back!” . just like they did belgum in WWI. and belgum fought the germans , who only asked for passage through belgum to france. based on british guarantees , the belgians fought the germans , and were utterly destroyed.
Noticed a new internet phenomenon recently: Polish guys complaining that suddenly the ads in their streets are full of ugly black people. So WW3 has barely begun and they already lost it. *Now* they’ll be sent to die in it, because the ritual can’t be left uncompleted.
If they’re alarmed by the blacks and the unrelenting miscegenation, they’re going to love the child tranny propaganda.
The US is, no hyperbole, satanic.
Noticed people keep claiming there is no definition of woke.
Calling good evil and evil good. Sinple as.
I shall not today attempt to define the kinds of material I understand to be embraced within that shorthand description of woke; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it.
we certianly are . the axis of evil in the world. https://pitt.substack.com/p/headline-when-a-quarter-of-the-class
The GAE has become not unlike a childless, menopausal 50 year old woman. Because she never derived a sense of worth from traditional family values, she partied until the wee hours of the night. It was all about her, and her vanity has outlasted her looks. Now she sits in front of a mirror, staring at the wrinkles, pondering another facelift, another Botox, while younger, prettier women walk by, poised to unseat her from her throne.
I guess the vibrants are the cats
Thank you for a good laugh
And when your looks are gone and you’re alone
How many nights you sit beside the phone
What were the things you wanted for yourself?
Teenage ambitions you remember well
[Chorus]
It was the heat of the moment
Telling me what your heart meant
The heat of the moment showed in your eyes
I would add that Switzerland’s abandonment of the famous Swiss neutrality and dependable bank privacy to seize Russian funds caused many of the rich to pull their money from Credit Suisse. I’m curious, if you can’t trust a Swiss bank account anymore, where are they putting their money now?
Cook Island trusts?
Cayman Islands perhaps….or under the mattress?!
“The goal is to squeeze out the Americans, who are in Syria stealing Syrian oil and gas. ” True. But virtually none of that oil/gas makes it to the US https://tinyurl.com/2p9d8wan. Most people know about the annexation of the Golan Heights and Genie Energy, but how many know that Israel now gets more than three quarters of its oil from the Kurdistan region of NE Syria/NW Iraq https://tinyurl.com/bdfjw92a where US troops are stationed?
“Much of what the banking system does could be automated at this point.” – This is true and exactly why they push the shadiest derivative products for the promise of yield. The scummiest 1970’s caricature of a used car salesman could never compete with the scumminess of the bankers who push that. And those products get ever harder to push when someone can now get similar yield in much safer securities.
Wednesday will be interesting. The Fed has a Sophie’s choice to make between fighting inflation and keeping their owners happy. Think of how bad they will look to tack up another .25% only to have to lower it a month later as the crisis continues to unfold. Not only in banks but balance sheets of some very large companies who contract with McKinsey and PWC to cook their books like Michelin chefs. Cooked books are fine. You can go for years with cooked books, until the price of money increases. Then look out. We’ll have WorldCom 2 soon.
In current year clown world, WorldCom/Enron can only happen to an enterprise disfavored by the regime. Energy, mining, agricultural, and gun companies are doing good business these days and don’t need the regime’s help to stay afloat. Medical/pharma have already been wired into the regime’s cash flow for years. So that doesn’t leave much that could be allowed to fail. Except the little guy.
what if Sophie only loves one of her kids?
But I do wonder whether Powell is willing to go down as the new Rudolf Havenstein in the history books…Or maybe he thinks there won’t be any history books in the future….
Mr Powell, if you’re reading this…
Walk up right up to the podium, lower your head down to the level of the microphone, and inform the shekelmongers that you’re raising interest rates to TEN PERCENT.
Then drop the mic on the floor and walk away.
[Insert Matrix III scene, “He fights for us!”]
” Covid was an accelerant in many ways” yes . it accelerates heart disease,cancer, dementia , stroke, and vision loss to name a few.
why the down votes?
kvh kvh kvh kvh
It appears that the Zblog has been targeted by Antifa for monitoring and attack. My guess is that he’s starting to get on the radar of the Cloud People and make them uncomfortable.
zman can you give us any info on the down votes? are there “new” voters all of a sudden?
You mean the “vax”?
This is why the downvotes. It was obvious he meant the vax but apparently some people took it at face value. Damn literalists, read between the lines! 🙂
Yes. absolutely . the vax. huge damage and death in my personal circle. know only a couple of pepople who were weriously hurt by covid , but a lot by the vax . several killed.
You forgot sudden death and AIDS….
The banks are simply a symptom of the larger issue: Too much debt.
Unless the Fed holds its rate near zero, the world has too much debt relative to income. But we’ve seen that ZIRP slowly destroys the economy. No good option.
Right now, it’s the interest-rate sensitive sectors (housing and banking) that are showing the stress of higher rates.
The Fed will pump money into the banks to keep them afloat. But what happens when businesses need to rollover their debt at the new, higher rates?
Z is right. Inflation solves a lot of problems. Higher inflation will push up nominal GDP, corporate profits and household incomes to handle the higher debt costs. It’s the best way out.
But, wait you say, won’t the bond market demand even higher interest rates if inflation runs hot? Well, they would normally, but that’s where the Fed will need to step in either via direct yield curve control or regulations (just force banks, pension funds and target-date funds to hold more treasuries).
Debt is always paid – either directly or indirectly. My guess is that the reduction of debt via inflation will be paid by bond holders (except TIPs) who will receive a lower interest rate than inflation and workers whose incomes won’t increase as fast as inflation.
Either incomes need to increase or debt needs to be reduced. Inflation or deflation. The Fed will choose the 1970s over the 1930s.
Inflation is a real common theme in late stage empires. Somehow they all seem to end up here. Because it’s the best, no, because it’s the easiest choice, from a bad menu. Kicking the can down the road is what liberal democracies do. It might as well be in their mission statement.
Yes, when I say “best,” I mean from the standpoint of those in charge, not necessarily your average person.
And, yes, debt then inflation seems to be a natural process in societies, especially empires.
The only trouble with kicking the can down the road is that eventually most roads end, the can becomes too heavy, or the kicker is too decrepit to kick anymore. 🙁
Citizen: As you noted the other day, they’ve chosen bond markets and banks over the working and middle class. Inflation – already at least 15% in real terms (food, energy, cars, etc.) will go up a whole lot more. How much and how fast will determine the social costs. The blaqs and mestizos all on food stamps and housing allowances will just get more gibs. The working Whites will pay – or go bankrupt and become homeless. The alien ‘elites’ don’t give a damn about White people.
3g4me-
The controllers only care about YT as potential cannon fodder for their wars.
Go check out the latest US Army recruiting video on YouTube for confirmation. I hope the hilarious responses are still posted. Maybe those are a sign people are waking up a bit.
Wow, that’s heartening to be sure. I can’t believe the retards who posted that video pinned the top comment, a stellar example of the bell curve at work. Check it out for yourself…
https://www.youtube.com/watch?v=4ItEHJc330Q
The comments are hilarious – and heartening.
Jesus H. Christ this is hilarious! Thank you so much for linking this. It is so rare to see people so out of touch with the zeitgeist.
Even going so far as to pin a racist AF comment thinking it is somehow related to the Marvel Cinematic Universe. LOL!
I was literally busting a gut laughing at the top comment and replies it is like 4chan invaded that comments section. Rare to see such high tier sh-tposting outside of there.
The other comments are also quite hilarious and as CoaSC said do indeed provide hope that maybe the message has finally gotten through even the thicker skulls about how hated & reviled the people are by their (((rulers))).
That Army recruiting commercial is the contemporary version of Fonzie jumping the shark.
There are more than two options. While it’s not likely because we are still a major reserve currency, a hyperinflation cannot be ruled out. It’d be make the 1970s look like the classical gold standard.
That assumes household incomes actually increase. If raises don’t keep up with inflation, or simply don’t happen, inflation is just a pay cut.
The Great Boomer Retirement is upon us though. At least umc white collar jobs are having a huge “butts in seats” labor shortage problem, never mind competency. Wages for 1-2 yr exp level work in my field have gone up about 50k since the LongLongAgo, Before Covid. Working class is doing ok so far, you can make $20+ an hour at entry level jobs where I am. McDonald’s is hiring, no experience required, at $18/HR.
So at least for now, the banksters and globohomocorps are taking it on the chin as well, at least sharing some of the pain.
All I can advise is to invest in things that have actual value. Things with a physical reality and actual intrinsic market value. A share of stock, a bond, a treasury bill, a dollar in cash, a bitcoin, those are all items of arbitrary value.
The problem with this is that value is inherently subjective. A 13″ Sony Trinitron color TV in 1974 was worth a lot more in 1974 than it is now, unless it’s in museum quality as a collectible. True believers in Scientology will spend thousands of dollars on L Ron Hubbard’s books and videos, and later when they realize that it’s all nonsense, they toss them in the trash or use them as kindling for the wood stove. Even food doesn’t have actual value, since if it sits around too long it becomes inedible.
Mencken Libertarian: Some excellent points – I am presently packing to move and dealing with exactly what you refer to. Old cassette tapes and videos – trashed. Old books – sold for pennies (got rid of about 25 boxes and still have another 20 packed to be kept and moved). Plenty of other things I will get rid of over time as my husband forgets we have them (too many decorative items that he bought in multiples when overseas, that we don’t need and I refuse to dust).
But . . . my garage is also full – of new stuff in boxes I bought for our move. A fire pit and a cooking grate and a cast iron dutch oven. Solar generators (to supplement the Generac the previous owners had installed). Electric and hand tools. Chain saw. Canner and jars. Seeds and heat mats. Books on food foraging, meat preserving, etc.
Tangible goods.
It’s really not that big of a chore to figure out what things have enduring value. I’m not telling you to invest in this year’s iPhone, but I’m not telling you what you *should* invest in. I leave that as an exercise to weed out the unworthy.
A few cinder blocks and some iron grating to build a rocket stove will never go out of style.
The difference, of course, is that Argentina was not run by transsexuals, genderqueers, black women and Marxist lesbians like the San Francisco Fed chief:
https://nypost.com/2023/03/17/why-woke-frisco-fed-chief-missed-silicon-valley-banks-warning-signs/
20th century Argentina might end up looking pretty good compared to what is coming.
Argentina is trying hard to keep up. From Wikipedia: “In 2021, the Cupo Laboral Trans law was passed — which established a 1% quota for trans workers in civil service jobs — and the country became the first in Latin America to recognise non-binary gender identities in its national identification cards and passports.”
No surprise.
The Argies have been photographing and fingerprinting all visitors who arrive legally for years.
The Misesians have been harping on this prognosis forever: sooner or later comes the crack up boom.
“Living on borrowed money is self-correcting in that the lender eventually stops lending. What the West faces is a problem where the lender cannot not stop lending.” As the value of the loan approaches zero, the lender constructively stops lending.
Perhaps repatriated dollars will be shopped to Ukraine in the hope that blowing up Ukraine will hobble the ruble. Even if it does, that won’t halt the Greenspan/Beinecke (sp)/Yellin/Powell put. Eggs at a dollar apiece. Forget bacon.
In 1975 my parents bought the house I grew up in for $29k. Even before the plandemic that same house was considered to be worth over half a million, and if you saw it you’d think I grew up a rich kid. So the GAE keeping itself running by debasing the currency is not a new thing, it has been going on for over a century. From about 1985-2020 they did a better job of confining the inflation to the stock and real estate markets. That was how their plan was intended to work. But eventually some incompetent people ended up in charge. Which is really the bottom line today: the people in charge cannot be trusted to manage any of this well, cannot even be trusted to manage their own interests well, let alone yours.
Cash is trash. I don’t know why anyone would keep more than a couple of months worth of expenses in cash in a bank, especially these days. If you are fortunate enough to have more than that to be concerned with protecting, well, I’m not a financial adviser, but for someone who’s not a moron who chases shiny things, who has a notion of how to invest in companies, I can’t shake the idea that stock in well chosen companies isn’t the worst place to be in this inflationary environment, in which the central banks have now signaled that they will print whatever they have to print. And we always knew they would, didn’t we. If you can find one you should look at a chart of the Weimar stock market. Stratospheric.
Gold is a nice idea but I don’t foresee the day when they accept it for payment at the grocery store. Like crypto its value is always denominated in the regime’s currency.
Gold doesn’t need to be accepted at the grocery store. If you buy a one ounce gold American Eagle coin today, it will cost you about $2,200.00. If inflation skyrockets, you’ll perhaps be able to sell it back to the coin shop for $3,000.00 in a year or two. And the grocery store will still be happy to accept your dollars for food. The only difference will be that the store will want to pay its bills as soon as possible. And they’ll need to as in a high inflation period, only a fool will be offering terms.
Jeffrey Zoar: Gold and silver are not going to make anyone record profits at least in the short term. Longer term, though, they do hold their value (i.e. post-collapse economy or boom). The problem with investing in stocks is assuming the market or the worlds economies or anything will still be the same 5-10 years from now. I am not willing to bet on that.
And Weirmar – Reich – Germany had the US to help rebuild and refinance after the rubble. Who would have the ability or desire to help us? China already owns a lot of the left coast up through into Canada. They’ll just settle another 10 million here and there; no need to help refinance anything, let alone use any military force.
ZIRP is supposed to last for one year, maybe two, to “jump start” the economy. They’ve run it almost every year since late 2008 until 2022, with the brief exception of 2017-early 20, going up to 2%. Then back down to 0%. Curious that was the Trump years up to COVID. The low interest rates also cut the cost of the $31 trillion national debt. Here’s a chart:
https://www.pgpf.org/analysis/2023/02/higher-interest-rates-will-raise-interest-costs-on-the-national-debt
“The enormity of this politically and economically cannot be understated.”
If I’m parsing that correctly, you’re saying that it’s impossible to place too little value on the crime (“enormity”) of the Global American Empire coming to end.
I know what you meant, but the sentence as written actually says the opposite of what you meant, twice.
I remember in the early aughts a cover on The Economist. It was the famous helicopter Ben edition. If deflation ever took hold they would just drop money on American cities from helicopters.
It seems like the only thing they worried about was deflation. It is hard to know if they just thought inflation would never be a problem, or if they just threw in the towel on being able to fight inflation knowing they would someday face an interest rate trap. No matter, they have never hidden that their disposition is not shared sacrifice, but rather, the sacrosanct lenders never take their losses.
It doesn’t matter. The consequences of this inflation will be far more than financial. In a time of great crisis it is essential for a ruling regime to rally the people, and to have legitimacy in asking for shared sacrifice. They have known this crisis was coming for a long time. What have they done. They have ratcheted up racial animosity and inflamed division – make the bitter and resentful seethe with a sense of justification for more bitterness and more resentment. They have demonized the majority population, declared to its face that its time is past.
Less than a century ago the nation faced a massive deflationary depression. It was hard but there was a shared identity, a people with grit and an abiding morality as a foundational rock. The leaders, agree or disagree with their policies, called upon the people with a shared sense of identity to sacrifice and endure. Having a shared past, seen as glorious, they could look upon countless prior examples and join ranks to envision and bring about better days. I suppose we could look at the living kumbaya Sesame Street episode they want us to believe we have become, but I don’t think that illusion is going to hold.
On a closing note, one of the best films I have ever seen is an Argentinian film called, “Nine Queens.” It is perfectly on topic with today’s post and parts of the Sunday green door post. I can’t recommend it enough.
Dropping things from helicopters, eh? Tell me more.
I believe that was the Chilean rather than Argentinian approach.
Seemed like a sound idea to me at the time.
I think the Argies did it too, learned from Chile. That’s how some of the disappeared disappeared.
“That is their liabilities outweigh their assets so they are effectively broke.”
Every simpleton knows debts are fixed and assets are not. For most people, the “asset” is their job. But it’s also true at the corporate level and the national level. Getting themselves into this trap was inexcusable. But they will pay themselves enormous bonuses and shift the losses to the masses.
Brutal honesty is now the coin of the realm on the Zblog. So let’s get real.
Where does this lead? Yes, inflation could be managed in the 10% range for years to come and we “might” muddle-through once again, but with significantly reduced standard of living. Is that likely? Hello, criminally underfunded public pension plans, social security, and medicare! Hyper-inflation here we come.
Is it possible to fix this via voting harder? Are we that stupid to think so? Bongino!!!!!!! The collapse is both inevitable and necessary. Fat-ass normie will not get off the couch until he has gone 3 days without a meal. And then what?
The elites will attempt the overt tyranny option, foster a war of annihilation between patriots and LEOs, kill off as many alphas as possible, and then unleash the Jackboots. Yes, we can try a militia response that results in a lot of dead innocents; but there is a better way, a far less harmful way. And it’s all about focus and nobodies that nobody notices. A lot of good men (and some women) are going to have a lot of time on their hands soon. Just sayin.
What specifically is the “better way”?
Z’s archives are available for review via links on the front page. You will find your answer there.
Two responses: People had tons of free time with Covid. Nothing happened. Two, I believe you vastly underestimate normalcy bias.
No one went 3 days without a meal during Covid. Normalcy bias has nothing to do with it. Normalcy in the human blood stream is the standard red blood cell. The rare exception is the T-cell, which is what keeps you alive when under attack by a pathogen. Don’t fall victim to the despair and defeatism that Cloud propaganda is fostering. If you believe you’re good enough, you have a fighting chance of being good enough.
This was a great essay/tour of the horizon. Let me just add a few interesting implications.
“The only way to sustain this now is for the people to be impoverished through systemic inflation”. Bingo! Mass migration depresses wages and Boomer savings are looted through inflation (or retirement ages go up – see France). Result: everyone, except oligarchs and bankers, suffers. This is a feature, not a “bug”.
“The West has turned itself into Argentina through bad policy and worse politics.” Every time the Politicians did something stupid, the Fed printed up the money to finance it or bailed out the blow-ups. This emboldened them, so they thought that they could have endless wars culminating in a full-scale (coof) lockdown of the economy without screwing up the System. But the problem has become too large and now the very credibility of the System is at stake.
Finally – “Social Credit” is here. The Fed and the Politicos will decide which banks get saved and which go under. The failed banks get auctioned to friendly buyers in sweetheart deals. (Barnard said this downthread). Regional banks were the last hope of small businessmen looking for alternatives to woke Moneycenter banks. Crushing them is now a policy objective of the Politicos.
The problem is money. The solution isn’t money. Only way out is kicking the habit. Everything else is pissing in the wind. Don’t kid yourself it’s somebody else’s problem.
Here’s a ranking of the world economies based on real things, like manufacturing, fossil fuels, agricultural products, electricity production:
https://threadreaderapp.com/thread/1549554660184231936.html
Services and financial activity have been subtracted out, because they do not create wealth, they merely redistribute the wealth created by the real economy.
In this ranking, Russia’s real economy is fully 68% of the US’, and China’s is 150% of the US’. Russia’s real economy is 4.6 times that of Germany’s, and it dwarfs the UK’s. Russia’s real economy is also 5.4 times that of Japan.
This ranking explains the struggles of Ukraine and the utter failure of the US/EU/UK sanctions against Russia.
The rankings also explain why the future belongs to RoW.
GDP, like CPI, is a lying statistic created by liars. GAE counts what you pay to your yoga instructor in GDP
You alleging bob does yoga? What did he ever do to you?
Double dipping here: Those numbers are good news as well as bad, for AINO. While our economy isn’t what it’s claimed to be, while a lot of it is fake economy supported by fake money, there still is more real economy here in this land than we often depict in our discourse here at the zblog. 2/3 of China’s by that count. About 150% of Russia’s. That’s something, it’s not nothing.
But Our Leaders are, at root, extremely hostile to that real economy, in no small part because the people involved in this real economy are adjudged to be Our Leaders’ cultural enemies. Clearly, along multiple axes, They have been very busy trying to destroy it; it forms in aggregate an alternative power center, and They are at war with rationality and functionality. That poses a problem for the real economy serving as a basis as a locus for regeneration. The Oligarchs/Leftist Nomenclatura define themselves in opposition to Traditionalists/Dirt People and, as has often been observed, they want us dead, or at minimum, disempowered.
Yes, I recall some details about GNP/GDP. According to the government’s brilliant economists, it has been officially determined that if you mow your own lawn, or your neighbor babysits your kids this week and you will do theirs next week, and suchlike activty, it isn’t counted in total economic activity. I’m not sure exactly why; I suspect because no funds changed hands. Using their logic, I suppose a man who sits on his ass 40 hous a week, but is paid a salary that comes (indirectly) from the Feds, is an economic asset. And until 2002, I was that man.
This also sheds some light on the fact that Russia has performed remarkably well against the US and it’s international team of muppets despite a “defense budget” that is a fraction of the what US and NATO spend.
As a former “defense” worker I’ve long known that the US has huge numbers of people doing jobs of very questionable value whose bloated salaries get added to the “defense” tally. A big chunk of what’s left of the middle class in fact is really just people addicted to the very thinly disguised welfare of this “defense” economy. Then these people buy 100″ TVs, BMW convertibles, iFags, and artery clogging food and before long a sizable percentage of *everything* that goes on economically in the FUSA is “defense” related.
I know a lot less about how Russia does its military accounting but my strong suspicion is that when the Russian government says a ruble was spent on “defense” there’s a fair chance that most of that ruble was either buying bullets or paying the salary of guy with a rifle who would be firing those bullets, even if only in training.
I never paid any attention to Argentina’s limp dicking its way through the 20th century, but I guess it may be time to study up. Even with a largely (I think) White demographic, they’re still pathetic. AINO is nowhere near that anymore, so things will probably get spicy.
On another note, I see the polack ambassador to France has let slip the notion that NATO will become directly involved in the war if Ukraine loses anymore ground. Why, that’s sure to take everyone’s mind off the banking/inflation clusterF I’m sure…
And what is NATO going to use against the Russians? Catapults? Long bows?
UsNthem: Argentina was primarily European back in the 1940s as a result of actively seeking Spanish and Italian immigrants. It had a larger economy than a number of European nations and/or Canada if memory serves (not inclined to fight with search algorithms today).
Today, not only has their definition of White changed (now 75% and up) but they have had substantial immigration by Indios and Mestizos from elsewhere in South America, not to mention the usual Haitians. And they’ve always had a contingent of special small hats, as usual heavily concentrated in media and finance.
In fairness, they had properly screwed Argentina up before there was any meaningful immigration from elsewhere in Latin America. (Mrs W’s family is from Argentina originally).
But yes, it’s happening now, and intra-LatAm immigration is going to be an ever-thornier issue. The Brazilians now resent all the Venezuelan immigrants, for example. But in Argentina, the more “based” land and business owners often are tolerating immigration because the new workers and farm hands won’t join the unions who have helped to screw everything up. It will likely play out in weird, unpredictable ways down there.
Argentina is something that needs studying. Demographically, it is better than most Latin countries. It does not suffer from racial strife. On paper, it should be a solid country, but instead it has been a train wreck for generations. I suspect there is a good HBD paper or two in studying Argentina.
Systems matter. Chile, until very very recently, has been a lot more successful than Argentina. Similar demographics; in fact, Chile has far more indigenous “indian/mestizo” folks. Argentina wiped out nearly all its indians very early on. One system produces Evita and Juan Peron, another Pinochet (with a little help from CIA).
IQ matters. Culture matters.
Captain Willard, as you say, if not for GAE intervention Chile would have long ago gone down the toilet. The truth is the truth.
the Perons are analogous to the Clintons, in their corrupting influence on Argentinian society.
“ The West has turned itself into Argentina through bad policy and worse politics.”
One can study HBD, but also how a country has adapted to 50+% yearly inflation. There is a YT video floating around where a guy visited Argentina and talked with some of the locals wrt the country’s inflation and how they understand it and deal with it.
Some interesting effects on the populace. For one, they seemed to know intuitively why the country suffers such inflation—weak politicians who will not cut spending. Everyone has their “thing” and therefore no one wants cutbacks in the welfare State, so Argentina keeps printing money. Everyone also has a side hustle.
For another, people get their paychecks or pensions at the beginning of the month and then they immediately spend it all to avoid the price rises during the month. When supplies run out, they simply do without until the beginning of the next month. Reminds me of the days of the old German Weimar Republic of the 1920’s
Finally, those folk who do have some income above and beyond immediate needs take their extra (pesos) cash and immediately trade it in on the black market for Euro’s or Dollars or gold. Highly illegal, but no one cares.
How many of these behaviors do we see developing here? That’s the tell to look for.
Argentina, like its national soccer team, has always been up or down, never consistent.
There was a blog entitled “surviving Argentina” written by ferfal. He has a book as well. Practical advice for our impending situation.
At the beginning of the 20th Century, Argentina was one of the richest, most prosperous countries in the world. By the end, they were a broke joke. Lost the Falklands War and couldn’t afford a Navy or Air Force any more. At one point, their President was using a rented plane because their Air Force One was going to be reprocessed.
We could do worse than becoming Argentina. I’m sure large swaths of that country are perfectly livable.
Glass is half full here. If score 100 was America of the 1950s, and score 0 is the Central African Republic, then Argentina would be 55. Not bad. Let’s not become Paraguay.
Gold get you some!
Bourbon, bullets, bullion – silver, gold coins have long shelf and may become useful in trade.
The Mandibles, by Lionel Shriver, lays out a realistic model of how things could play out.
I liked that book too, It seemed to get the economics dead right.
Bilejones: Agreed. filler for filter
I initially gave up on The Mandibles for some of the libby stuff early on, but I returned to it because so many people recommended it.
I’m glad I did. I get the sense the author became a full on goldbug by the time she finished the manuscript.
She has also been excellent on the coof mess, and she was one of the few early voices speaking out about how dumb it was.
I’ve been saying for a while now that Canada is destined to be akin to Argentina – a resource rich yet semi-functional state where the economy sort of works some of the time, where the government is more concerned with grifting and creating scapegoats than fulfilling their core duties, and the people can never get their act together to demand better, sinking instead into a grumbling complacency, shrugging their shoulders at the whole mess because whaddayagonnado?
America will be a little rowdier since there are pockets of free men who survive there and will try to keep the spirit alive in their own way, largely failing but with some sporadic success on local scales, so I’m less sure of the proper Central/South American analogous state. Argentina with more guns, perhaps?
It’s too bad, because for years Canadians were reasonable and competent while being self-effacing regarding their many accomplishments. Contrast that with Argentinians – in constant turmoil while being totally arrogant and blind to their constant failure.
The main difference is that Canada has a pretty powerful central state with just enough bureaucratic competence to enforce its misguided writ throughout all the provinces.
IDK if you can point to a single reason that Canada has become what it is. All kinds of things brewing together for decades to produce a national character of capital-p Progressive self-satisfied smugness with a complete inability to self-examine (so long as we can point south and say, “Not like THEM!” that’s the end of any discussion on anything of consequence). We were born on third base and thought we hit a triple; personified in our current trust-fund second-generation prime minister. A prince of fools to run a country of fools.
Canada, like Europe, has been insulated from the consequences of its choices for a long time.
The immediate problem is that banks hold bonds as reserve capital, to be sold as the need arises to make repay depositors that withdraw.
Bonds are sold at a discount to their face vlaue – which determines the interest rate. So a bond that matures at $100 in ten years and is sold for $99 is said to be paying 1% interest (this is an extremely simplified explanation).
The problem is that when the fed raises the interest rates substantially the present value of the bonds falls – dramatically. So with an increase to 4% interest rate the present value of the bond above falls to $60.
And all of a sudden, the bank which formerly had adequate reserves to cover depositors does not.
There’s only three ways out – either the bank goes bankrupt and the depositors lose or are paid off by government. Or the bank shifts to riskier higher interest devises for their capital reserves – which carries high(er) risk of default and back to situation one. Or the central bank buys the bank’s bonds at face value – which directly counters their efforts in raising interest rates in the first place.
Reading about their schemes over the weekend, my guess is that the central banks will first try to swap assets they currently hold with better market value for those assets with a depressed market value. They also plan to offer short term zero interest loans against non-performing assets, which is a nice way of saying they will take MBS at book value for collateral. In effect, they are creating a market for these assets.
In theory this could keep the banks liquid as they work out of their problems without spiking inflation. The Fed swaps new treasuries, for existing treasuries, which will age off in the coming years. The trouble is the Fed balance sheet is about $8.5t right now. They needed to shrink that down in order to have flexibility in a future crisis. Now they are locked into this giant balance sheet.
The Fed’s balance sheet will keep growing whether people like it or not.
The bigger problem is that the fed will have to take the actions you describe that will counter their efforts to fight inflation.
We’re at the point where some inflation will be necessary to keep banks solvent.
The risk is that banks will unintentionally be incentivized to make riskier higher interest loans. Which will also contribute to inflation.
No tree can grow to the sky. The sky in this case is total control of banking by the Fed. Ironically, we are heading into the same trap faced by the Soviets. The lack of genuine price signals leads to more and more rounds of granular management until the cost of maintaini8ng the system outweighs the benefits.
“If the rule you followed led you to this, of what use was the rule?”
https://youtu.be/0U_FBHKYqRk
The paradox is that the Fed’s balance sheet can grow and grow, but the velocity of money can shrink as people and banks become more risk averse and hoard liquidity. The result is M1/M2 contraction, which we were already experiencing in recent months even before this debacle. The whole episode will likely cause a recession.
The basis of the problem was is in the length of the term of the bond. SVB bought long(ish) term bonds rather than shorter term and failed to ladder them wrt interest rates. They bet (leveraged) on low interest rates continuing into the future despite indications of rising inflation and Fed effort to control such. They were greedy. This seems due to the money the exec’s got in bonuses when their books looked good before the inevitable crash.
Hopefully, other banks are being run more conservatively and can withstand the current and foreseeable climb in interest rates. What I don’t understand is why the *vaunted* “stress tests” the banks are supposedly subject to failed to show this weakness (over dependence on long term bonds for profitability).
Amazingly, the recent stress tests have focused on recessions, not inflation. In a recession the banks have credit problems, but they’re offset by investment bond gains as rates go down. Whoopsie! Nobody at the Fed/FDIC bothered to change the stress test.
You describe, I think, how a bank should be run — in a rational world. But policy wise, we don’t live in such a world. Indeed we live in Clown World. As such, and already mentioned as a problem, is the moral hazard(s) created when there is a backstop (in the US, the FED) who is willing to bail out nearly anyone. Or at least, the politically favored. Read up a bit on Silicon Valley Bank, its inept borad of directors (only one had any banking background!), its uber-liberal client base and recipients of largesse (e.g. BLM) and you’ll start to understand why with that crisis, a “need” was seen to make good all accounts, the 250K limit be damned. They’re allowed to do that in an “emergency,” and by modern standards, that means your cronies stood to lose their ass.
All this is to say: the old rules, or even the curent ones, really don’t matter any more. They haven’t for a very long time; it’s just that the theft is getting more blatant, in part, I suspect, because those currently in charge are increasingly incompetent and/or they simply don’t care. There are no consequences for bad behavior. And that’s another thing — in this upside-down world of inverted values, individuals or businesses who tried to do things the conservative, sound, old-fashioned way often find themselves at a disadvantage to the golden boys. And should they fall into trouble, they’ll be last in line to recieve aid. If there is even any offered.
Derbyshire did a good job explaining all this, how bonds work, banking, risk assessment, in his latest podcast.
Now bonds are usually sold at a discount because rates have been low for so long but in a normal rate environment with some high/low fluctuations bonds can sell at premiums. A high rate bond in a declining rate environment will increase in value so that it pays the buyer an equivalent of the current rate.
Mortgage backed securities fluctuate worse that fixed income securities because MBS offer prepayment of principal and in low rate envireronments the holder gets an extra kick of cash raising the yield. When rates are increasing prepayment dries up and reduces the rate and increases the duration of the security. You end up with a low yielding long maturity security that can only be sold at a substantial loss.
why not make a rule that the banks payout the bonds, at face value?
The post you responded to made the rather basic error of conflating all bonds with Zero rate bonds,
You ever seen the ECB president? Why do they all look like that?
You know why. Wikipedia early life alert.
It is a result of keeping your head up your ass for long periods of time.
“Their heads” up “their asses” is what I mean.
Well, the people in charge wanted to repeat the Twentieth Century. I don’t know enough about macroecon to know whether hyperinflation can become a reality here, but if it does, the World War Two larpers are going to get their wish, sort of. Since history rhymes rather than repeats, it could mean we get to be the Germans, humiliated and living off turnip-based margarine while wiping our babies’ bottoms with newspaper that gives them terrible rashes. Sure, white people aren’t having babies anymore, and no one (except old white people) still gets a physical copy of the newspaper delivered to their door, but you get the idea.
America doesn’t suffer the same landlocked/lebensraum problem as Germany, but a porous border shared with barbarians and our manufacturing completely offshored to people we’ve alienated could amount to the same kind of slow strangulation.
Will “Evil Charlie Chaplin” (as my professor called him) show up to rouse the rabble? I doubt it. A rightwing strongman—while a pleasant thought—might not be in the cards. A return to prosperity is also way too much to ask, but at least with a Franco or a Pinochet we would still eat regularly and not have to worry about the nation-wreckers doing anymore damage than they’ve already done. My guess is that as things get worse, that Yeats’s words will ring true, that the worst of us—HR harpies, race baiters, grifters, surveillance state spooks, warmongers, sexual deviants, dual loyalists—will be full of even more passionate intensity than right now while the best are disheartened. Religious conviction might guide some people through, but they’d have to be really serious, and there aren’t too many of those left here in America, especially among professing Christians. Good luck, everybody.
Hyperinflation is not a real concern, assuming one defines hyperinflation as greater than 50%. I think we are facing double digit inflation until there is political will to reform the system. My guess is that by the end of this decade, Western rulers will be forced to nationalize the banks, default on large swaths of debt and reorder their economies.
The problem is we now lack the human capital we had in the 1980’s and we have this growing class of stupid people and aliens that may make reform impossible.
“My guess is that by the end of this decade, Western rulers will be forced to nationalize the banks, default on large swaths of debt and reorder their economies.”
That’s assuming those worthy of power will be anywhere near the levers. Zman, the writing was on the wall in 2008. They choose poorly. Everything they’ve done since then is to make sure those who would wield power in a manner other then thievery and murder will not be near the lever. All they have to do is decide to reach out and take it.
https://youtu.be/qIitjokEJwg
“this growing class of stupid people and aliens that may make reform impossible”
Preventing reform was exactly the point of dumbing down natives and importing Third Worlders. Feudal lords and their well-compensated foot soldiers like the current arrangement and still can milk the kulaks some before they get started on the peasants.
I don’t give them that much credit. They just wanted warm bodies for cheap labor. Sure there were a few who wanted immigration for other reasons, but they never would have prevailed without the acquiescence of those who were financially motivated and demographically blind.
Plots to undermine a society often start with some very smart (and evil) people indeed. They seldom move forward though without the help of large numbers of much dimmer intellects motivated by one or more of the good old 7 deadly sins.
In America the sainted small business man is often used to provide a lot of the horsepower to move the immigration train down the tracks. He may not like having to press “1” for English but he sure doesn’t want to pay White college kids to work for his little lawn care company. Without the acquiescence and indeed enthusiastic support of millions of these guys the sooper-geenyuses in Big Business and the Democratic Party would never have been able to work their Great Replacement magic.
I completely agree with Z. TPTB will institute any policy in order to mitigate emerging problems, gradually spiraling down and down. Nationalizing is the true endgame of fiat currency. The twist, and thus the question of how the events will resolve, is the population. People are stupid and lazy. I would not be surprised if the revolution comes from the top. What if, when we hit rock bottom, TPTB institute a new form of feudalism? Do you not think that most would gladly accept it. Universal basic income to offset inflation, tied to compliance (your daily Covid vaxx, housing voucher, etc.), would become a necessity to survive. That form of soft authoritarianism is exactly what the overlords seem to fetishize. The days of a population overthrowing the system (i.e. their overlords) are not exactly likely, based on my observation of the current populace. Give a man a fish, he eats for a day. Give a man a voucher to eat everyday, he will give you everything.
When the regime has the choice of defaulting on debt or printing some more currency to pay it, I know which one is the likely choice. The $31 trilllion doesn’t come due all at once. It will just take a little more printing to pay what’s due. Just this one time.
I have read many who have explained the problem well but all are not on the same page as what to do personally to protect oneself.
Buy gold. Buy silver. Spread money across many banks. Take out all your money and put in a safe. Real estate. On and on.
The government, the Fed, and the rest are going to do what they want. What do we do? Get a wheelbarrow?
Short term make sure that you don’t have more than the federally insured amount in any given bank.
Long term – who knows – it could go any number of ways.
Bank crises are inherently deflationary – as we lived through in ‘08-‘10. The government’s response is inherently inflationary ‘10-present.
If you can stomach doing business with them, you just need to put your money in a too big to fail bank. Janet Yellin admitted as much when getting questioned by Sen. Lankford of Oklahoma last week. Then you are also running the risk of the bank freezing your account if they find out you think bad thoughts, but that is probably marginal for most people.
The truth is, the peasants never have good options. The surest guard against inflation is to reduce spending. Obviously, finding investments that track with inflation. TIP’s are the most obvious place to start. Gold has only paid two percent the last decade. It was $1600 ten years ago and is $1975 right now.
I am a finance person, and still don’t quite understand how TIPS are behaving. They have sucked for a year now despite high inflation. I get that they work on the inflation delta, but still. And they haven’t paid their monthly dividend in 6 months. WTF is that about? You might as well buy high yield, low beta stocks and ride it out.
I suspect some fingers on the scale here. Fudging the CPI solves three problems for the Treasury. One is reduces entitlement increases. Two it makes the pols happy. Three is makes treasuries look better relative to inflation protected assets.
For the last year, you got better deals on things like crap-tier college bonds. I think it was Howard University that was offering seven percent for short term bonds.
“I suspect some fingers on the scale here.”
Now read what you just said about gold and silver not moving in price. The price of their competition i might add.
Well, their “real” interest rate went from nearly -2% to around +1.5%, so they got nailed by rising interest rates just like nominal bonds.
But nominal bonds got hit by the same change in rates, so TIPs should have lost about the same as nominal treasuries with the same during but received the inflation boost. So, if IEF loses 10%, TIPS should lose only ~4% because of 6% inflation.
But they’ve both fallen a similar amount. It’s a bit weird. Individual TIPs have behaved the way that you’d expect; it’s just the TIPs funds that haven’t.
The goldbugs never stop beating their drums and at some point became a cult. Maybe it’s good but as you show it hasn’t increased much in value. Of course they will say at least it holds value. Not against inflation.
Might actually be the oldest cult my friend. Chose, but chose wisely 😉
“The strong do what they can and the weak suffer what they must” – attributed to Thucydides
5-Year TIP is yielding 1.5%. That’s a very good place to park your money. Yeah, they could dink around with CPI somewhat, but it needs to be in the ballpark of correct or people will get pissed.
If you’re going to hold bonds, I’d buy individual TIPs. (Beware that it causes a bit of some tax annoyances. Just remember, you have to list OID as interest income.)
2 year treasury yields 4.5%
gold has had a runup the last year, and may already have current inflation priced in. then of course there is the problem of guaranteeing you are actually getting gold.
Gold is not an investment vehicle, but it does serve as a hedge of sorts against calamity. If there is a collapse of the system, no one will take dollars to fill your tank with gas, but they will take gold or other precious metals. If you have only dollars, and especially if they are in a bank, you are gambling as well as if you converted *all* your assets into precious metals. We saw a glimpse of that with the Canadian trucker’s strike.
There is a balance assuming you have assets to spare. Color me nervous, but careful—especially if digital currency takes off.
The pair of shoes that today cost $50 and will cost $150 in two years is a good place to start. The closet is a safer and a wiser investment than the bank let alone the markets at this point. Also, if your horizon is more than ten years, raw land prices may become attractive soon. Three things are certain now: death, taxes and inflation. Keep an eye on that second item, too. The price of government is escalating just as rapidly and a government that doesn’t mind impoverishing its peasantry won’t mind milking it even more for self-interest. Think feudalism more than Peronism.
good luck selling those used shoes. a used car might hold value (and can even earn $$ on Turo).
Use in the future, not sell.
ahhh, ok, that makes sense 🙂
Buy assets that typically do well in an inflationary environment.
Individual TIPs (could also use a TIPs ETF)
Unlevered farmland (unfortunately, you need to be an accredited investor, i.e., portfolio of $1 million to be allowed to buy farmland through AcreTrader or Farm Together)
Unlevered timberland
Value stocks
You could own a bit of gold, but I’d take farmland over gold. Farmland both produces a commodity and is land, both are good with inflation. Much better than gold.
As to sectors, here’s a nice article.
https://www.allianzgi.com/en/insights/outlook-and-commentary/sectors-and-styles-to-fight-inflation